Mortgage blog: The winners and losers from five years of low interest rates

Wednesday 5 March 2014 marked the fifth anniversary of the Bank of England base rate hitting its record low of 0.5%. For half a decade the UK has enjoyed historically low interest rates with the Bank of England voting to hold the base rate at half of 1% 60 times.

Over the last five years record low rates have transformed the personal finances of millions of Brits. While it has been a disaster for some people it has been a lifeline for others.

The drastic base rate cut was made amid the banking turmoil of 2008 and 2009 which saw the collapse of Lehman Brothers and the near-collapse of Northern Rock and the Royal Bank of Scotland. And, since 2009, there have been winners and losers of the 0.5% base rate.

Savers have been hit hard by low interest rates with action group Save Our Savers reporting that savers have lost a total of £326.3bn since rates were cut to 0.5%, the equivalent of £5,000 per member of the UK population, including children.

While savers have suffered, it is millions of mortgage borrowers that have benefited most from record low rates. Figures from Moneyfacts.co.uk show the cost of fixed-rate mortgages has fallen drastically since the cut to bank rate with the cost of two year deals falling from around 4.75% in 2009 to just over 3.5% now.

Borrowers with tracker rate mortgage deals have saved thousands of pounds in interest over the last five years. The Daily Telegraph reports that someone with a £200,000 tracker mortgage when bank rate was 5%, as in late 2008, could have paid £1,339 per month. When the bank rate dropped to 0.5% their monthly mortgage outgoings would have fallen to under £900 - a saving of about £440 per month.

The borrower in the scenario above would have saved over £26,000 in interest costs over the last five years.

Keith Osborne, editor of Whathouse.com, says: "Anyone who has a tracker or variable rate mortgage will have seen their repayments tumble and remain low for the past few years. For millions of people struggling to cope in the recession, rock-bottom interest rates have been the difference between keeping afloat and financial meltdown.

"With interest rates expected to stay low for another year these borrowers will continue to benefit. However, with a base rate rise on the horizon, now is the time to be seriously thinking about reviewing your mortgage arrangements with a professional."

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